This study will analyze the variance in per-person utilization of substance abuse treatment services that are financed by the public-sector through Medicaid and block grant funds. Methods such as reducing the influence of outliers on total payment amounts and developing multivariate statistical explanatory models will be used to investigate the potential empirical performance of prospective payments known as case rates. Under a case rate payment system, providers would receive an average payment to cover substance abuse treatment services for a client for a specified period of time. The study will generate options for payment system reform that are based on paying case rates to providers, giving full consideration to potential positive results such as improved efficiency and retention in treatment, as well as potential pitfalls associated with payment errors or reduced access to care. The empirical analyses will be based on data for publicly financed substance abuse clients in Massachusetts, covered by Medicaid and/or the Bureau of Substance Abuse Services. Treatment clients will be categorized into financial rate cells, taking into account important differences in patient and provider characteristics. Other payment system features will be addressed, including risk sharing arrangements and whether clients need to be locked into closed networks. Simulations will be conducted of the potential performance outcomes for payers and providers using various assumptions about policy parameters chosen for the payment system, as well as behavioral responses such as favorable risk selection by providers. The result could inform State agencies or other payers that may contemplate moving from a fee-for-service payment system toward managed-care models.